Labor Market Information Provision and Job FairsService Sector Female Labor Preference

Spousal Labor Supply Underestimation Gap

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In Simple Words

Imagine measuring how much a family reduces electricity use when one partner buys a generator, but ignoring the fact that the other partner also turns off several household appliances. Measuring only the buyer's actions misses a substantial portion of the total household energy savings.

Same Swedish sample, two earnings totals

Winner earnings only
1.066 SEK less per year
Including spouse earnings
1.306 SEK less per year

Same lottery sample, two earnings totals. Five-year annual effects per 100 SEK won; including spouses increased the estimated reduction by 23%.

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Research question

Evaluating wealth effects on labor supply exclusively at the individual lottery winner level misses the concurrent work adjustments made by the winner's spouse. Aggregating labor responses across both partners reveals the true total household reduction in labor supply.

Participants

N = 244,826 full sample observations (142,102 married winner-spouse pairs in Sweden).

Study Design

Econometric panel analysis comparing 5-year post-win pre-tax earnings reductions of individual winners against combined household earnings reductions using randomized lottery cells.

Results

Individual married winners reduce pre-tax labor earnings by 0.965 SEK per 100 SEK won, while their spouses reduce earnings by 0.408 SEK per 100 SEK won; the total household response is -1.306 SEK per 100 SEK won, indicating that individual-level analysis understates true total labor supply reductions by 23%.

Takeaway

Multiply individual-level income effect estimates by a factor of 1.23 to capture total household labor supply reductions when evaluating unearned wealth transfers.

Source and citation

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